PART 232—LIMITATIONS ON TERMS OF CONSUMER CREDIT EXTENDED TO SERVICE MEMBERS AND DEPENDENTS Authority: 10 U.S.C. 987. Source: 80 FR 43606, July 22, 2015, unless otherwise noted. § 232.1 Authority, purpose, and coverage. (a) Authority. (b) Purpose. (c) Coverage. (1) Provides the maximum allowable amount of all charges, and the types of charges, that may be associated with a covered extension of consumer credit; (2) Requires a creditor to provide to a covered borrower a statement of the Military Annual Percentage Rate, or MAPR, before or at the time the borrower becomes obligated on the transaction or establishes an account for the consumer credit. The statement required by § 232.6(a)(1) differs from and is in addition to the disclosures that must be provided to consumers under the Truth in Lending Act; (3) Provides for the method a creditor must use in calculating the MAPR; and (4) Contains such other criteria and limitations as the Secretary of Defense has determined appropriate, consistent with the provisions of 10 U.S.C. 987. § 232.2 Applicability; examples. (a)(1) Applicability. (2) Examples Covered borrower. (ii) Not a covered borrower. (b) Examples. § 232.3 Definitions. As used in this part: (a) Affiliate (b) Billing cycle (c) Bureau (d) Closed-end credit (e) Consumer (f)(1) Consumer credit (i) Subject to a finance charge; or (ii) Payable by a written agreement in more than four installments. (2) Exceptions. (i) A residential mortgage, which is any credit transaction secured by an interest in a dwelling, including a transaction to finance the purchase or initial construction of the dwelling, any refinance transaction, home equity loan or line of credit, or reverse mortgage; (ii) Any credit transaction that is expressly intended to finance the purchase of a motor vehicle when the credit is secured by the vehicle being purchased; (iii) Any credit transaction that is expressly intended to finance the purchase of personal property when the credit is secured by the property being purchased; (iv) Any credit transaction that is an exempt transaction for the purposes of Regulation Z (other than a transaction exempt under 12 CFR 1026.29) or otherwise is not subject to disclosure requirements under Regulation Z; and (v) Any credit transaction or account for credit for which a creditor determines that a consumer is not a covered borrower by using a method and by complying with the recordkeeping requirement set forth in § 232.5(b). (g)(1) Covered borrower (2) The term “covered member” means a member of the armed forces who is serving on— (i) Active duty pursuant to title 10, title 14, or title 32, United States Code, under a call or order that does not specify a period of 30 days or fewer; or (ii) Active Guard and Reserve duty, as that term is defined in 10 U.S.C. 101(d)(6). (3) The term “dependent” with respect to a covered member means a person described in subparagraph (A), (D), (E), or (I) of 10 U.S.C. 1072(2). (4) Notwithstanding paragraph (g)(1) of this section, covered borrower does not mean a consumer who (though a covered borrower at the time he or she became obligated on a consumer credit transaction or established an account for consumer credit) no longer is a covered member (as defined in paragraph (g)(2) of this section) or a dependent (as defined in paragraph (g)(2) of this section) of a covered member. (h) Credit (i) Creditor, (1) Engaged in the business of extending consumer credit; or (2) An assignee of a person described in paragraph (i)(1) of this section with respect to any consumer credit extended. (3) For the purposes of this definition, a creditor is engaged in the business of extending consumer credit if the creditor considered by itself and together with its affiliates meets the transaction standard for a “creditor” under Regulation Z with respect to extensions of consumer credit to covered borrowers. (j) Department (k) Dwelling ( l Electronic fund transfer (m) Federal credit union (n) Finance charge (o) Insured depository institution (p) Military annual percentage rate (MAPR). (q) Open-end credit (r) Person (s) Regulation Z (t) Short-term, small amount loan (1) Subject to and made in accordance with a Federal law (other than 10 U.S.C. 987) that expressly limits the rate of interest that a Federal credit union or an insured depository institution may charge on an extension of credit, provided that the limitation set forth in that law is comparable to a limitation of an annual percentage rate of interest of 36 percent; and (2) Made in accordance with the requirements, terms, and conditions of a rule, prescribed by the appropriate Federal regulatory agency (or jointly by such agencies), that implements the Federal law described in paragraph (t)(1) of this section, provided further that such law or rule contains— (i) A fixed numerical limit on the maximum maturity term, which term shall not exceed 9 months; and (ii) A fixed numerical limit on any application fee that may be charged to a consumer who applies for such closed-end loan. § 232.4 Terms of consumer credit extended to covered borrowers. (a) General conditions. (1) Agreed to under the terms of the credit agreement or promissory note; (2) Authorized by applicable State or Federal law; and (3) Not specifically prohibited by this part. (b) Limit on cost of consumer credit. (c) Calculation of the MAPR. Charges included in the MAPR. (i) Any credit insurance premium or fee, any charge for single premium credit insurance, any fee for a debt cancellation contract, or any fee for a debt suspension agreement; (ii) Any fee for a credit-related ancillary product sold in connection with the credit transaction for closed-end credit or an account for open-end credit; and (iii) Except for a bona fide fee (other than a periodic rate) which may be excluded under paragraph (d) of this section: (A) Finance charges associated with the consumer credit; (B) Any application fee charged to a covered borrower who applies for consumer credit, other than an application fee charged by a Federal credit union or an insured depository institution when making a short-term, small amount loan, provided that the application fee is charged to the covered borrower not more than once in any rolling 12-month period; and (C) Any fee imposed for participation in any plan or arrangement for consumer credit, subject to paragraph (c)(2)(ii)(B) of this section. (iv) Certain exclusions of Regulation Z inapplicable. (2) Computing the MAPR Closed-end credit. (ii) Open-end credit In general. (B) No balance during a billing cycle. provided, however, (d) Bona fide fee charged to a credit card account In general. (2) Ineligible items. (i) Any credit insurance premium or fee, including any charge for single premium credit insurance, any fee for a debt cancellation contract, or any fee for a debt suspension agreement; or (ii) Any fee for a credit-related ancillary product sold in connection with the credit transaction for closed-end credit or an account for open-end credit. (3) Standards relating to bona fide fees Like-kind fees. e.g., (ii) Safe harbor. (iii) Reasonable fee. (iv) Indicia of reasonableness for a participation fee. (4) Effect of charging fees on bona fide fees Bona fide fees treated separately from charges for credit insurance products or credit-related ancillary products. (ii) Effect of charges for non-bona fide fees. (iii) Examples. (B) In a credit card account under an open-end (not home-secured) consumer credit plan during a given billing cycle, Creditor B imposes on a covered borrower a fee for a debt cancellation product (as described in paragraph (c)(1)(i) of this section), a finance charge (as described in paragraph (c)(1)(iii)(A)), a bona fide foreign transaction fee that qualifies for the exclusion under this paragraph (d), and a bona fide, but unreasonable cash advance fee. All of the fees—including the foreign transaction fee that otherwise would qualify for the exclusion under this paragraph (d)—and the finance charge must be included when calculating the MAPR. (5) Rule of construction. § 232.5 Optional identification of covered borrower. (a) No restriction on method for covered-borrower check. (b) Safe harbor In general. (2) Methods to check status of consumer Department database In general. https://www.dmdc.osd.mil/mla/welcome.xhtml (B) Historic lookback prohibited. (ii) Consumer report from a nationwide consumer reporting agency. (3) Determination and recordkeeping; one-time determination permitted. (i) A consumer initiates the transaction or 30 days prior to that time; (ii) A consumer applies to establish the account or 30 days prior to that time; or (iii) The creditor develops or processes, with respect to a consumer, a firm offer of credit that (among the criteria used by the creditor for the offer) includes the status of the consumer as a covered borrower, so long as the consumer responds to that offer not later than 60 days after the time that the creditor had provided that offer to the consumer. If the consumer responds to the creditor's offer later than 60 days after the time that the creditor had provided that offer to the consumer, then the creditor may not rely upon its initial determination in developing or processing that offer, and, instead, may act on the consumer's response as if the consumer is initiating the transaction or applying to establish the account (as described in paragraph (b)(3)(i) or (ii) of this section). § 232.6 Mandatory loan disclosures. (a) Required information. (1) A statement of the MAPR applicable to the extension of consumer credit; (2) Any disclosure required by Regulation Z, which shall be provided only in accordance with the requirements of Regulation Z that apply to that disclosure; and (3) A clear description of the payment obligation of the covered borrower, as applicable. A payment schedule (in the case of closed-end credit) or account-opening disclosure (in the case of open-end credit) provided pursuant to paragraph (a)(2) of this section satisfies this requirement. (b) One-time delivery; multiple creditors. (2) Multiple creditors. (c) Statement of the MAPR In general. (2) Method of providing a statement regarding the MAPR. (3) Model statement. (d) Methods of delivery Written disclosures. (2) Oral disclosures. In general. (ii) Methods to provide oral disclosures. (A) The information to the covered borrower in person; or (B) A toll-free telephone number in order to deliver the oral disclosures to a covered borrower when the covered borrower contacts the creditor for this purpose. (iii) Toll-free telephone number on application or disclosure. (A) A form the creditor directs the consumer to use to apply for the transaction or account involving consumer credit; or (B) A written disclosure the creditor provides to the covered borrower, pursuant to paragraph (d)(1) of this section. (e) When disclosures are required for refinancing or renewal of covered loan. § 232.7 Preemption. (a) Inconsistent laws. (b) Different treatment under State law of covered borrowers is prohibited. (1) Authorize creditors to charge covered borrowers rates of interest for any consumer credit or loans that are higher than the legal limit for residents of the State, or (2) Permit the violation or waiver of any State consumer lending protection covering consumer credit that is for the benefit of residents of the State on the basis of the covered borrower's nonresident or military status, regardless of the covered borrower's domicile or permanent home of record, provided that the protection would otherwise apply to the covered borrower. § 232.8 Limitations. Title 10 U.S.C. 987 makes it unlawful for any creditor to extend consumer credit to a covered borrower with respect to which: (a) The creditor rolls over, renews, repays, refinances, or consolidates any consumer credit extended to the covered borrower by the same creditor with the proceeds of other consumer credit extended by that creditor to the same covered borrower. This paragraph shall not apply to a transaction when the same creditor extends consumer credit to a covered borrower to refinance or renew an extension of credit that was not covered by this paragraph because the consumer was not a covered borrower at the time of the original transaction. For the purposes of this paragraph, the term “creditor” means a person engaged in the business of extending consumer credit subject to applicable law to engage in deferred presentment transactions or similar payday loan transactions (as described in the relevant law), provided however, (b) The covered borrower is required to waive the covered borrower's right to legal recourse under any otherwise applicable provision of State or Federal law, including any provision of the Servicemembers Civil Relief Act (50 U.S.C. App. 501 et seq. (c) The creditor requires the covered borrower to submit to arbitration or imposes other onerous legal notice provisions in the case of a dispute. (d) The creditor demands unreasonable notice from the covered borrower as a condition for legal action. (e) The creditor uses a check or other method of access to a deposit, savings, or other financial account maintained by the covered borrower, except that, in connection with a consumer credit transaction with an MAPR consistent with § 232.4(b), the creditor may: (1) Require an electronic fund transfer to repay a consumer credit transaction, unless otherwise prohibited by law; (2) Require direct deposit of the consumer's salary as a condition of eligibility for consumer credit, unless otherwise prohibited by law; or (3) If not otherwise prohibited by applicable law, take a security interest in funds deposited after the extension of credit in an account established in connection with the consumer credit transaction. (f) The creditor uses the title of a vehicle as security for the obligation involving the consumer credit, provided however, (g) The creditor requires as a condition for the extension of consumer credit that the covered borrower establish an allotment to repay the obligation. For the purposes of this paragraph only, the term “creditor” shall not include a “military welfare society,” as defined in 10 U.S.C. 1033(b)(2), or a “service relief society,” as defined in 37 U.S.C. 1007(h)(4). (h) The covered borrower is prohibited from prepaying the consumer credit or is charged a penalty fee for prepaying all or part of the consumer credit. § 232.9 Penalties and remedies. (a) Misdemeanor. (b) Preservation of other remedies. (c) Contract void. (d) Arbitration. (e) Civil liability In general. (i) Any actual damage sustained as a result, but not less than $500 for each violation; (ii) Appropriate punitive damages; (iii) Appropriate equitable or declaratory relief; and (iv) Any other relief provided by law. (2) Costs of the action. (3) Effect of finding of bad faith and harassment. (4) Defenses. (5) Jurisdiction, venue, and statute of limitations. (i) Two years after the date of discovery by the plaintiff of the violation that is the basis for such liability; or (ii) Five years after the date on which the violation that is the basis for such liability occurs. § 232.10 Administrative enforcement. The provisions of this part, other than § 232.9(a), shall be enforced by the agencies specified in section 108 of the Truth in Lending Act (15 U.S.C. 1607) in the manner set forth in that section or under any other applicable authorities available to such agencies by law. § 232.11 Servicemembers Civil Relief Act protections unaffected. Nothing in this part may be construed to limit or otherwise affect the applicability of section 207 and any other provisions of the Servicemembers Civil Relief Act (50 U.S.C. App. 527). § 232.12 Effective dates. (a) In general. (b) Prior extensions of consumer credit. (c) New extensions of consumer credit. (d) Provisions of 10 U.S.C. 987(d)(2). (e) Civil liability remedies. § 232.13 Compliance dates. (a) In general. (b) Safe harbors for identifying a covered borrower New safe harbors. (2) Prior safe harbor valid until general compliance date. (c) Limited exemption for credit card account; reservation of authority In general. (2) Authority to issue an order to extend exemption.